Research

In a laboratory experiment, participants first choose between two purely redistributive tax regimes and then generate income through a real effort task. High taxes insure against unfortunate gross incomes, but increase effort-reducing moral hazard. 

The results suggest that subjects' initial tax choices behind a veil of ignorance are quite heterogeneous. Overconfident subjects are more likely to choose low taxes. When familiar with the task and their relative gross incomes, subjects choose the tax rate opportunistically: High-income subjects tend to choose the low rate, while low-income subjects tend to choose the high rate myopically. ''Voting by feet'' eventually leads to a high proportion of subjects choosing the low tax. A control treatment in which the tax rate is exogenous given helps to identify the moral hazard effect because it controls for selection. A further treatment where income is randomly given helps to quantify subjects' redistributive preferences arising from income uncertainty.

This paper is about the price effects caused by a VAT (value-added tax) reduction for menstrual hygiene products in Germany. Several aspects make this VAT reduction particularly interesting: The exogeneity of the reduction under otherwise constant economic conditions, the reduction was substantial and permanent, demand for the products is inelastic and in many cases, pass-through rates are more than 100 percent. We find that the VAT reduction is completely passed through to consumers. Despite this complete pass-through, we still detect a significant effect of retailer competition: When more retailers offer a product, the price reduction is larger.

In markets with experience goods, entry regulation in the form of occupational licensing is widespread.  To answer the question whether consumers benefit from such regulation as intended,  we run a market experiment with buyers who are heterogeneous with respect to their taste for quality. Two sellers first sequentially choose whether to invest, where investments either improve a seller's ability to provide better quality or make quality observable. Then, sellers choose qualities and finally set prices. We compare treatments in which the two firms can always offer a product to treatments in which an investment is a prerequisite to enter the market. Our results show that the effect of the regulatory entry barrier depends on the effect of the investment. Firms invest significantly more when the investment in qualification is required by regulation. However, we observe significantly higher qualities only when the investment in qualification leads to the observability of the quality. This is in line with theoretical predictions. In that case, consumer surplus also rises.